2 Cash-Rich, Cheap Tech Stocks That Consistently Beat Analysts' Estimates

Includes: PSEM, TER
by: Bret Jensen

After three months of continuous rally, values in the market are starting to get harder to find than an atheist in a foxhole given the still uncertain economic outlook. However, there seem to be plenty of cheap stocks in the semiconductor sector. Here are two cash-rich stocks in the sector that look undervalued from a variety of metrics and that consistently beat analysts' earnings estimates.

"Pericom Semiconductor Corporation (NASDAQ:PSEM) designs, develops, and markets high performance digital, analog, and mixed-signal integrated circuits; and frequency control products used in electronic systems worldwide." (Business description from Yahoo Finance)

Four reasons PSEM is cheap at just under $9 a share:

  1. Half the company's market capitalization is represented by the net cash on its balance sheet.
  2. Pericom has easily beat analysts' consensus earnings estimates each of the last four quarters. The average beat over consensus during that time period has averaged 45%.
  3. The stock is cheap at 88% of book value and just 8 times operating cash flow (4 times if adjusted for net cash).
  4. The four analysts that have an estimate have a median price target of $11.50 on PSEM. The stock is selling at the bottom of its five-year valuation range based on P/S, P/B and P/CF.

"Teradyne, Inc (NYSE:TER) provides automatic test equipment products and services worldwide. The company operates in three segments: Semiconductor Test, Systems Test Group, and Wireless Test." (Business description from Yahoo Finance)

Four reasons TER is still a bargain at just over $16 a share:

  1. The company has over $500mm in net cash on its balance sheet (more than 15% of market capitalization at current prices).
  2. Teradyne has beat consensus earnings estimates for thirteen straight quarters. The average beat over consensus the last four quarters has been over 32%.
  3. TER is selling at just over 8 times forward earnings, a deep discount to its five-year average (15.2).
  4. The median price target held by the 14 analysts that follow the stock is $21.50. TER also has five-year projected PEG of under 1 (.72).

Disclosure: I am long TER. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.